Energy Subsidies and the Climate Dilemma in Middle Eastern Petro-States: An Empirical Analysis

This study examines the link between fossil fuel subsidies and greenhouse gas emissions in five major Middle Eastern petro-states: Iran, Iraq, Kuwait, Saudi Arabia, and the UAE, which face a severe dilemma as they weigh the imperative of addressing climate change against their economic reliance on fossil fuels. Covering the period 2010–2023, the analysis estimates the elasticity of emissions with respect to total and fuel-specific subsidies. The results indicate a robust and statistically significant positive association between subsidies and emissions, with a 10 percent reduction in total subsidies corresponding to a 1.2 percent decline in emissions. Among fuel types, gas subsidies show the strongest and most consistent correlation with emissions, while oil and electricity subsidies exhibit weaker or statistically insignificant patterns. The findings highlight the environmental relevance of fuel-specific subsidy reforms and provide an empirical foundation for evaluating policy pathways that balance fiscal sustainability, social welfare, and emission-reduction objectives in the region.